Iran

Published October 18th, 2000 - 02:00 GMT

Indicators: 

1998 

1999 

2000e 

GDP real growth rate (%) 

3.2 

1.5 

2.5 

Budget Balance (% of GDP) 

-3.5 

-2.0 

1.0 

Inflation (%) 

20.0 

21 

16.0 

Total Exports (US$bn) 

12.98 

18.69 

14.0 

Total Imports (US$bn) 

13.61 

12.65 

9.44 

Trade Balance (US$bn) 

-0.63 

6.04 

4.56 

e - Al-Bawaba forecasts 

 

 

 

 

 

Political Outlook 

 

Reformers attained a sweeping victory in last February’s parliamentary elections. Politicians that back the liberal policies of President Mohammad Khatami now control approximately two-thirds of Majlis seats, while only a small minority support hard-line conservative candidates.  

 

Following the reform faction's enormous triumph, many were awaiting the country's embrace of sweeping change. Instead, violence and turbulence have characterized unfolding events. A handful of mortar rounds exploded in Tehran in late March, a day after the assassination attempt of a key political strategist and advisor to President Khatami. These two apparently unrelated incidents have magnified political rifts and further polarized the Islamic Republic's warring factions. Reformers blame conservative elements for the shooting of Saeed Hajjarian, the Khatami confidante, and accuse them of striving to destabilize the country. The President now faces mounting pressure to crack down on suspected Islamic vigilantes. Many of his followers believe that the attackers were hard-line law enforcers who attempted to exact revenge for the conservatives' election defeat. 

 

Economic Outlook 

 

The massive reform victory spurred speculation that the United States would relax economic restrictions imposed on Iran. These expectancies were shattered, however, as President Clinton extended a ban on American oil contacts with Iran, accusing Tehran's government of continuing to support international terrorism. The sanctions introduced in 1995 prohibit US companies from investing in Iran's energy sector.  

 

European oil firms have exploited US policy by becoming increasingly aggressive in seeking lucrative deals to develop Iran's huge oil and gas industry. Last November, for example, Shell Exploration secured an $800-million agreement with the National Iranian Oil Company to develop two offshore fields. American firms, which watch such deals materialize, fear they are missing out on profitable opportunities. Aware that American oil companies are unhappy with their own government's policy, Iran has invited US firms to take part in developing its energy resources. One significant variation of the new moderate Majlis will be to divert more attention to creating an attractive foreign investment environment. While a complete transformation may not be imminent, foreign capital will be courted, especially in Iran's hydrocarbon sector, with increasingly competitive terms offered.  

 

On the domestic front, the election victory should also provide a boost for Khatami's economic liberalization program. The outgoing conservative-led assembly had opposed gradual market reform. For example, it rejected a government proposal to raise petrol prices by 28 percent and other fuels and power by 20 percent to curb paralyzing state subsidies and trim wasteful use. Nevertheless, the President has also met resistance to his privatization plans from pro-reformers; privatization in the telecommunications, power and water industries has been blocked. 

 

Meanwhile, Iran is also striving to join the World Trade Organization. During the mid-February meeting of the U.N. Conference on Trade and Development (UNCTAD) in Bangkok, Iran's Commerce Minister alluded to his country’s desire to accede, but accused unnamed countries of blocking its efforts to join based on political grounds. At the moment, Iran finds itself outside the 135-nation trading club, which deprives it of certain commercial privileges. WTO membership could yield much-needed job opportunities for a country in which 2.9 million members of its workforce, or 16.3 percent, are unemployed (many experts claim that unemployment is in fact double the official rate). It would also provide a spark for an economy that expanded by merely 1.5 percent in 1999 and is projected to grow by 2.5 percent this year. 

 

Conclusion 

 

The lens of the international media remains focused on Iran's power struggle between conservative and reformist elements. At the same time, President Khatami is striving to revitalize his country's lagging economy. While the President's rhetoric outlines the need for political reform, the Islamic Republic also desperately requires market reforms, including gradual privatization of loss-making state industry and streamlining trade and investment laws. Without the execution of meaningful steps, Iran's development goals will remain an illusion. 

 

Multinational firms should observe with great detail how events unfold in Iran, as signs of amelioration in the political and business arenas abound. If reforms proceed, Iran, with a population of more than 63 million and GDP of over $60 billion, could represent an extremely lucrative market. Nevertheless, even with a more moderate Majlis and the expected re-election of Khatemi next year, progress will continue to be impeded by the influence of conservative factions, which still control the important military apparatus and judicial system. Once the political gamesmanship subsides, the relative power of reformist elements will determine the degree to which Iran opens itself to the global economy. 

© 2000 Mena Report (www.menareport.com)

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